According to BeckersDental.com, “31% of dentists plan to retire in the next six years. DentalPost surveyed nearly 3,500 dental professionals to create this year’s report, which was conducted from October to November 2024.”
Right away, I thought this is very positive news for the industry because it creates opportunities for associates to enter the ownership game. Most retiring dentists are not looking to just “hang up their coat” and be done; they are often open to gradual transitions. If an associate dentist is not in a financial position to buy the practice outright, they can start purchasing it in increments.
Most dentists know there are advantages to selling to a DSO (e.g., potentially higher valuation, structured transitions, reduced managerial burdens, etc.). However, it’s important to highlight potential downsides that may be beneficial for associates looking to acquire the practice from a retiring dentist. Below are a few points for the selling dentist to be aware of when considering a DSO sale:
Earnouts and Contingent Payments
- Performance Targets: Many DSO deals include an earnout component tied to future production or revenue goals. If patient flow or staff turnover affects production, the selling dentist might not receive the full earnout.
- Loss of Control: After selling, the dentist no longer has complete control over how the practice is run. If the new owners change protocols or operations, it can impact production and, consequently, the seller’s remaining payout.
Equity or Stock Uncertainty
- Valuation Fluctuations: If part of the sale proceeds is paid in the DSO’s stock or “roll-over” equity, the selling dentist’s final payout depends on the DSO’s performance. If the DSO underperforms or the market shifts, that equity may be worth less than expected.
- Dilution Risks: If the DSO issues more equity or raises additional capital, the original shares may become diluted, reducing their value.
Cultural and Operational Changes
- Potential Staff Pushback: A corporate environment can sometimes clash with an established practice culture, leading to staff dissatisfaction or turnover. This can harm production or patient experience.
- Patient Perception: Longtime patients may feel uneasy about a “corporate takeover,” leading to attrition if the practice atmosphere changes too much.
Loss of Autonomy
- Decision-Making: Once sold, the practice owner must adhere to the DSO’s protocols, systems, and sometimes even clinical guidelines. This loss of independence can be disheartening for dentists who are used to making their own decisions.
- Branding: DSOs may rebrand or unify practice marketing, resulting in the loss of a familiar local identity that the selling dentist spent years building.
Contractual Obligations
- Restrictive Covenants: Many DSO sale contracts include non-compete or non-solicitation clauses that can significantly limit the selling dentist’s freedom if they decide to practice elsewhere or re-enter the market.
- Longer Employment Commitments: Some DSOs require the selling dentist to work for the organization for a set period. While this can facilitate a smoother transition, it can also feel restrictive if circumstances change.
Alignment of Goals
- Different Priorities: A DSO’s primary focus is often maximizing operational efficiency and profitability. If the selling dentist’s priorities are more patient-focused with an emphasis on “quality over quantity,” there may be friction in how the practice is run.
- Clinical Autonomy Tensions: Even if a DSO promises clinical autonomy, new systems and KPIs (key performance indicators) can lead to changes in treatment planning or scheduling that conflict with the dentist’s preferred style of practice.
Reputation Risks
- Community Backlash: Some communities or fellow professionals may view DSO-owned practices less favorably than independent practices. This perception can affect referrals and the overall standing of the practice.
- Long-Term Legacy: The selling dentist might feel a loss of legacy or personal connection if the practice—after years of personal investment—shifts to a more corporate model.
On my podcast episode with Dr. Scott Goldman and Dr. Pete Boulden, we cover the pros and cons in depth and I can also sense the unease among dentists who are looking to sell soon and considering the DSO route. In conclusion, the next five to seven years are looking great for private practice ownership, and I will continue to encourage associates to pursue ownership. It's the ultimate American Dream for those who desire it.
